Mediclinic International plc

(Incorporated in England and Wales)

Company Number: 08338604

LSE Share Code: MDC

JSE Share Code: MEI 

NSX Share Code: MEP

ISIN: GB00B8HX8Z88

LEI: 2138002S5BSBIZTD5I60

South African income tax number: 9432434182

("Mediclinic", or the "Company", or the "Group")

12 November 2020

MEDICLINIC INTERNATIONAL PLC - 2021 half-year RESULTS

Mediclinic announces its results for the six months ended 30 September 2020 (the "period" or "1H21"); comparative figures are drawn from the Group's results for the six months ended 30 September 2019 ("1H20"). The Group adopted the new IFRS 16 Leases standard on 1 April 2019 with all reporting on this basis unless specified otherwise.

Details of the 1H21 results investor and analyst audio webcast and conference call are available at the end of this announcement and on the Group's website at www.mediclinic.com .

Dr Ronnie van der Merwe, Group Chief Executive Officer of Mediclinic, said:

Mediclinic continues to effectively navigate the COVID-19 pandemic, fulfilling an essential role to the communities we serve during a profoundly challenging period by putting patients first. The commitment and resilience of our employees and business partners during this extremely challenging period deserves our continued thanks.

As announced in our recent trading update, Mediclinic delivered a robust first-half operating performance with the Group's operational agility being a key contributor. We saw trading rebound from May 2020, particularly in Switzerland and the United Arab Emirates, as the initial peak of the pandemic passed. In Southern Africa, the recovery has been more gradual due to the timing of the initial peak and the larger volumes of COVID-19 patients Mediclinic has treated.

The pandemic has already taught us much about our business, our ability to respond in a crisis and the strong demand for our broad range of healthcare services. Furthermore, it has allowed us to accelerate certain elements of our Group strategy, such as digital transformation, that give us opportunities for additional expansion across the continuum of care and therefore driving long-term performance. In the short-term, we remain well-prepared, but suitably cautious on our second-half performance in the midst of uncertainty as to the severity, duration and full impact of the continuing pandemic, as well as its economic aftermath."

Group financial RESULTS SUMMARY

Group financial SUMMARY

Group overview

INTRODUCTION

The Group's robust first-half operating performance was supported by demand and supplemented by an expanded service offering aimed at meeting clients' changing behaviour.

As previously disclosed, revenue and profitability were significantly impacted in April 2020 by the sudden onset of COVID-19-related lockdown measures. From May 2020 onwards, the moderation of restrictions resulted in a strong rebound in operating performance in Switzerland and the United Arab Emirates ("UAE"). During the summer months, Mediclinic Middle East, and, to a lesser extent, Hirslanden benefited from counter-seasonal trends from imposed travel restrictions and delayed procedures during the lockdown period. Southern Africa experienced a more gradual recovery through the initial peak of the COVID-19 pandemic (the "pandemic").

The Group remains cautious on second-half performance in the midst of uncertainty as to the full impact of the continuing pandemic and its economic aftermath. Mediclinic's leading market positions, relentless focus on operational delivery and strategy execution is, as always, aimed at capitalising on structural growth drivers in the healthcare sector, underpinning the long-term performance of the Group.

EFFECTIVELY NAVIGATING THE PANDEMIC

The Group continues to fulfil an essential role in combatting the pandemic. As an international healthcare services provider, Mediclinic prioritises the safety of its employees and patients; the continuity of its operations; and its support of and collaboration with the relevant health authorities - all while delivering on its Group strategy. The Group has admitted over 19 000 COVID-19 patients of which around 3 000 required intensive care and over 2 000 were ventilated. 

From the outset of the pandemic, the Group responded efficiently and effectively to the rapidly changing environment through its centrally coordinated clinical services function. Mediclinic implemented infection prevention and control programmes leveraging its Group insight and best practices. The Group's international perspective remains a key differentiating factor for Mediclinic. Multi-disciplinary taskforces at Group and divisional level enable Mediclinic to constantly re-evaluate its ongoing response to the pandemic, allowing it to optimise treatment and care pathways for patients, in order that demand for critical and intensive care beds is managed appropriately.

The Group also invested in a number of initiatives to support employees, affiliated doctors and communities during this time, including establishing 24/7 client call centres and crisis control centres. 

The Group's centrally co-ordinated procurement teams with global sourcing capabilities have played a pivotal role in ensuring unabated delivery of critical care. Across three continents, the team's pro-active measures ensured the continued supply of critical personal protective equipment ("PPE"), drugs, consumables and intensive care unit equipment. In line with the global trend during the initial peak of the pandemic, the cost of many supplies increased. The Group continues to actively manage its stock to provide contingencies in the event of future peaks.

In support of pandemic-related solidarity funds, non-executive directors of the Board, executive directors, senior managers and many employees have made significant financial donations to national initiatives in their respective countries.

ADVANCING THE GROUP STRATEGY

The Group strategy enables operational agility and sustains a diverse, performance-driven and collaborative culture - two key aspects to leveraging scale, knowledge and skills for sustainable growth. While disruptions caused by the pandemic have inevitably tested this strategy, it has also shown that the strategy is the right one and Mediclinic remains confident that it is well positioned for the long-term industry trends.

During the period, the Group has moved nimbly and proactively to the changing demand and opportunities presented by the pandemic and established new services and supporting infrastructure, including:

· advancing the use of virtual care;

· establishing testing units and additional laboratory facilities;

· launching pharmacy home delivery and drive-through pharmacies; and

· establishing alternative interim facilities to admit asymptomatic and low-acuity cases.

While some of these provide one-off benefits, others will offer the Group new growth and efficiency opportunities in the future such as accelerating initiatives in laboratories, virtual care and pharmacy services.

Innovation and digital transformation

The pandemic has highlighted and accelerated the global demand for accessible, convenient, quality care. To ensure Mediclinic is well-positioned for the future of healthcare provision, the Group is accelerating the execution of its innovation and digital transformation initiatives. In pursuit of creating a seamless service offering, the organisation is investing in solutions that will enable and support clients across the continuum of care. 

During the pandemic, lockdowns necessitated the rapid deployment of certain telemedicine services to provide remote access to the Group's clinical experts and its existing services. As a result of the pandemic, Mediclinic accelerated the development of overarching solutions that will solidify its ability to render virtual care to its clients for the longer-term.

Core to Mediclinic's virtual care initiative is the development and deployment of a digital healthcare backbone across the divisions. This will allow for the launch of a seamless client experience across all service offerings, both virtual and physical. The client facing application is already in an advanced planning phase and will be launched in Switzerland, during the first quarter of calendar year 2021. In time, expanded and enhanced services will be available across Mediclinic to all its clients. On the digital platform, Hirslanden will pilot a pregnancy and baby pathway, Mediclinic Southern Africa will pilot a new dialysis service and Mediclinic Middle East will implement remote patient monitoring.

In the UAE, Mediclinic Middle East recently became the first private healthcare provider to integrate its Electronic Health Records ("EHR") successfully with the Health Information Exchanges in both Dubai and Abu Dhabi. During the pandemic, these integrated systems enabled automatic COVID-19 test result notifications via client applications on mobile devices.

As reported in the 2020 Annual Report, the Group is preparing to launch a precision medicine service, initially at Mediclinic Middle East, and shortly thereafter at Hirslanden. Delivering new revenue streams, the service will utilise the established laboratory facilities in the divisions led by specialist geneticists, offering the ability to tailor disease treatment and prevention according to variability in the genes, environment and lifestyles of individual clients.

In October 2020, the Group Executive Committee welcomed Dr Tyson Welzel to the team as Group Chief Innovation Officer tasked with establishing a centrally led Innovation and Digital Transformation function that will pursue opportunities in this rapidly growing segment.

Investing across the Continuum of care

Mediclinic is uniquely positioned given its scale, geographic diversification and well-invested asset base in an industry with high barriers to entry. For more than 35 years, it has established a market leading position and unparalleled trust through its specialist-orientated, multi-disciplinary medical facilities housing exceptional clinical expertise. The distinct combination of these facilities and Mediclinic's experienced professionals form the cornerstone of the Group, but importantly provide a platform to expand and deliver new services. Mediclinic has prioritised adapting its service offering through investing across the continuum of care as clients seek solutions that are modern, convenient, effective and affordable.

The Group continues to invest in day case clinics to support regional care models with 17 now opened. During the period, Mediclinic acquired Opera Zumikon in Zurich and opened a co-located day case clinic at Mediclinic Cape Gate in South Africa and Opera St Gallen located close to the Klinik Stephanshorn in Switzerland. In addition, Hirslanden is collaborating with the Geneva University Hospital to create the largest day case clinic in Switzerland with the opening of the facility scheduled for 2024.

Hirslanden has advanced its significant cooperation agreement with Medbase, the leading Swiss specialist in family healthcare and part of the Migros Group, through the sale of three Hirslanden outpatient clinics to Medbase. The two partners have established a radiology joint venture, which will be managed by Hirslanden. These broader primary care networks support patients in efficiently addressing their healthcare needs by offering integrated care and referral networks. In South Africa, Mediclinic Southern Africa has a similar partnership through its investment in the Intercare Group and in the UAE, the division has an established network of 18 wholly owned outpatient clinics.

Clinical excellence

Across the Group, Mediclinic continues to invest in its clinical service offering, receiving recognition for its highly specialised medicine and leading clinical practitioners. This continues to elevate the clinical standing of the Group amongst healthcare professionals and authorities, key stakeholders that support the Group's purpose and vision. As an employer of choice, throughout the period, the Group has continued to welcome leading professionals from various medical fields with some establishing training and research facilities with Mediclinic.

The Group benefits greatly from its investments in establishing Centres of Excellence ("CoEs"), public private partnership ("PPP") agreements, university affiliations and student medical training programmes.  Hirslanden continues to build on the two PPPs it announced last year. During the period, a urology and a cardiology collaboration agreement was concluded between the Centre for Urology Zurich and the heart clinic at Klinik Hirslanden and the cantonal hospital Spitäler Schaffhausen. In addition, Hirslanden Klinik Im Park and Spital Lachen have announced that a similar agreement in cardiology will be established in January 2021. In the UAE, the Surgical Review Corporation accredited the Metabolic and Bariatric Surgery CoE at Mediclinic Airport Road Hospital in Abu Dhabi. In January 2021, this flagship tertiary care hospital will also benefit from the opening of a Comprehensive Cancer Centre ("CCC"), the second to be established by the division in collaboration with Hirslanden oncology specialists. The division's other CCC at Mediclinic City Hospital (North Wing) was also recently awarded the Dubai Health Care City Excellence Innovation Award and in September 2020, the first ever robotic liver resection surgery in Dubai was performed at the hospital using the recently acquired da Vinci robot.

GROUP FINANCIAL PERFORMANCE

Adjusted results

The Group delivered a robust first-half operating performance, despite revenue and profitability being significantly impacted in April 2020 by the sudden onset of COVID-19-related lockdown measures and the suspension of non-urgent elective surgical procedures. As previously announced, April 2020 Group revenue was down 33% and adjusted EBITDA was down around £60m compared with the prior period. From May 2020 onwards the restrictions moderated, enabling the gradual safe reintroduction of the Group's diverse service offering.

The Group's 1H21 revenue was down 7% at £1 411m (1H20: £1 515m) and down 5% in constant currency terms.

Group adjusted EBITDA at £171m was down 32% (1H20: £252m) in both reported and constant currency terms. This was caused by the sudden revenue decline exacerbated by the mostly fixed employee cost base, salary increases to nursing employees, staffing requirements due to isolation and quarantine regulations as well as an increase in demand for critical care employees. Within consumable and supply costs, the use and cost of PPE surged during the initial peak of the pandemic before stabilising. Across the Group, incremental COVID-19-related expenses totalled around £17m. The Group's adjusted EBITDA margin was 12.1% (1H20: 16.6%).

Adjusted depreciation and amortisation was down 2% to £106m (1H20: £108m) reflecting lower capital investment during the period due to the liquidity preservation measures and translation differences caused by the depreciation of the Rand.

Adjusted operating profit was down 54% at £66m (1H20: £144m).

Net finance cost was down 8% at £37m (1H20: £40m) mainly due to the reduction of base rates in South Africa and the UAE as well as translation differences caused by the depreciation of the Rand, which is also the highest interest rate environment.

The adjusted tax credit of £1m (1H20: tax charge of £23m) and adjusted effective tax rate for the period of (2.1)% (1H20: 21.7%) reflects the Swiss tax charge offset by a tax credit in Southern Africa. In addition, the rate decreased due to a higher contribution of non-taxable income from Mediclinic Middle East compared with 1H20, partly offset with an increase in the effective tax rate due to the recognition of non-deductible equity accounted losses from the investment in Spire Healthcare Group ("Spire").

Adjusted non-controlling interests were down 75% to £3m (1H20: £11m) mainly due to lower contributions from Mediclinic Southern Africa hospitals with large outside shareholdings.

Adjusted share of net profit of equity accounted investments was down from a profit of £2m in 1H20 to a loss of £10m in 1H21, reflecting the net loss reported by Spire for the six months ended 30 June 2020.

Both adjusted earnings and adjusted EPS were down 77% at £17m (1H20: £73m) and 2.3 pence (1H20: 9.9 pence) respectively. In June 2020, the Board took the prudent and appropriate decision to suspend the dividend. The Board recognises the importance of its dividend to shareholders and will keep this position under review in light of the uncertainties posed by the pandemic.

Cash flow conversion at 42% (1H20: 98%) was primarily impacted by lower receivables collections in Mediclinic Middle East compared with earlier in the period, exacerbated by the strong counter-seasonal performance in the second quarter period, increased debtors balances in Hirslanden and a normalisation in Hirslanden's trade payables balance post the initial peak's stringent liquidity preservation measures. The Group continues to target 90-100% cash conversion. Cash and available facilities at the end of September 2020 remained strong at £449m on a comparable basis to £518m at 31 March 2020. A further unutilised bank facility in Switzerland of CHF250m was re-activated after year-end as part of the proactive measures taken with lenders. Therefore, total cash and available facilities at 30 September 2020 was £661m.

In response to the crisis, the Group's capex programmes were significantly reduced and as performance stabilised, investment projects recommenced. In total during the first-half, the Group invested £43m, of which £28m was on expansion projects, mainly the Mediclinic Airport Road Hospital expansion and EHR projects in the UAE. Currently the Group expects to invest around £173m in FY21 in constant currency terms. The Group continues to make ongoing investments in its asset base and during the period approved major multi-year upgrade and expansion projects in Switzerland at Hirslanden Klinik St Anna and Klinik Aarau. 

The Group maintains a strategy of responsible leverage, largely using its asset base to secure cost-efficient ring-fenced borrowings. While property ownership drives operational and financial benefits, the approach is not fixed, reflecting the business needs of the Groupas it expands across the continuum of care.

Debt is ring-fenced within each division, with no cross guarantees or cross defaults. Borrowings are denominated in the same currency as the divisions' underlying revenue and therefore not exposed to foreign exchange rate risk. All three divisions have recently refinanced their debt and, therefore, maturities are relatively long dated. The nearest term material maturity is a Swiss bond for CHF145m due in February 2021. The unutilised bank facility of CHF250m is available to fully repay the bond. 

As a matter of prudence, the divisions proactively engaged with lenders to obtain certain covenant test waivers where the financial impact from the disruption caused by the pandemic may have resulted in covenants being exceeded before coming back into compliance as operations normalise. This approach is evidence of the long-term, supportive and constructive relationships with the Group's lenders aimed at addressing matters as they arise. Mediclinic Middle East reverts back to the original covenant compliance tests at the end of June 2021, whereas for Hirslanden and Mediclinic Southern Africa this will be performed at the end of September 2021.

Reported results

Reported 1H21 revenue was down 7% to £1 411m (1H20: £1 515m) and EBITDA was down 32% to £171m (1H20: £252m), down 5% and down 32% respectively in constant currency terms.

Depreciation and amortisation decreased by 2% to £106m (1H20: £108m). Operating profit of £64m (1H20: £149m) decreased due to the significant impact in April 2020 by the sudden onset of COVID-19-related lockdown measures and the suspension of non-urgent elective surgical procedures.

Net finance cost decreased by 8% to £37m (1H20: £40m).

The Group's effective tax rate for the period was a credit of (3.2)% (1H20: (10)%).

The reported earnings show a profit of £15m (1H20: £109m). The EPS was 2.0 pence (1H20: 14.8 pence).

Mediclinic's 29.9% investment in Spire is equity accounted. For the six months ended 30 June 2020, Spire reported a loss after taxation of £233m (30 June 2019: profit of £7m), which included a goodwill impairment charge of £200m. Mediclinic's 1H21 equity accounted loss amounted to £70m (1H20: income of £2m). Mediclinic has therefore recognised an impairment reversal of £60m, which resulted in a net loss of £10m included in reported earnings.

DIVISIONAL SUMMARY

Hirslanden

At the end of the reporting period, Hirslanden operated 17 hospitals and four day case clinics with 1 921 beds and 10 995 employees (7 631 full-time equivalents). It is the largest private acute care hospital group in Switzerland servicing approximately one third of inpatients treated in Swiss private hospitals. Hirslanden accounted for 51% of the Group's revenues (1H20: 46%) and 58% of its adjusted EBITDA (1H20: 45%).

Mediclinic Southern Africa

In Southern Africa (including South Africa and Namibia), at the end of the reporting period, Mediclinic operated 52 hospitals, eight sub-acute and specialised hospitals and 11 day case clinics (four of which operated by Intercare) with 8 738 licensed beds and 15 858 employees (17 794 full-time equivalents including agency employees). Mediclinic Southern Africa is the third largest private healthcare provider in Southern Africa by number of licensed beds. Mediclinic Southern Africa accounted for 22% of the Group's revenue (1H20: 31%) and 16% of its adjusted EBITDA (1H20: 38%).

Mediclinic Middle East

Mediclinic Middle East, as at the end of the period, operated seven hospitals, two day case clinics and 18 outpatient clinics with 927 licensed beds and 6 866 employees (6 866 full-time equivalents). In addition, under management contracts Mediclinic Middle East recently took over the operation of one hospital in Abu Dhabi and will open a 200-bed hospital in the Kingdom of Saudi Arabia in mid-2022, in partnership with the Al Murjan Group. Mediclinic Middle East accounted for 27% of the Group's revenue (1H20: 23%) and 27% of its adjusted EBITDA (1H20: 17%).

HIRSLANDEN

Overview

Switzerland introduced COVID-19 lockdown measures on 16 March 2020, which included the suspension of elective procedures for all hospitals. Hirslanden has been extensively engaged with the cantonal authorities and involved in their pandemic response planning. Since lockdown measures were relaxed on 27 April 2020, including the resumption of elective procedures, inpatient admissions immediately recovered in May 2020 and through June 2020, stabilising thereafter.

Revenue in 1H21 decreased by 2% to CHF853m (1H20: CHF871m). Inpatient revenue and admissions were down 1%, recovering from the significant impact of COVID-19 lockdown measures and restrictions in April 2020.

The general insurance mix increased ahead of expectation to 50.7% (1H20: 49.2%), largely as a result of Hirslanden supporting cantonal hospitals during the initial peak of the pandemic. Despite this shift in insurance mix, inpatient revenue per case was stable due to an increase in the case mix index directly and indirectly due to COVID-19. Average occupancy was at 58.2% (1H20: 58.8%) due to a decline in the average length of stay from 4.4 to 4.3 days and the lower inpatient admissions during the peak of the pandemic.

Outpatient and day case revenue, which contributed some 21% (1H20: 21%) to total revenue in the period, was down 4%. This is in line with outpatient activity trends observed in other markets during the pandemic where the recovery has been slower than in the inpatient environment, likely as a result of more cautious patient behaviour, especially for those with less severe medical indications.

An increase in supply costs and additional staffing requirements during the pandemic gave rise to the 17% decline in adjusted EBITDA at CHF116m (1H20: CHF141m) with an adjusted EBITDA margin of 13.7% (1H20: 16.2%). COVID-19-related expenses were around CHF5m.

Adjusted depreciation and amortisation decreased by 6% to CHF73m (1H20: CHF78m). Adjusted operating profit decreased by 32% to CHF43m (1H20: CHF63m).

Net finance cost was flat at CHF29m (1H20: CHF29m).

Hirslanden contributed £17m to the Group's adjusted earnings compared with £29m in the prior period.

Hirslanden converted 44% (1H20: 86%) of adjusted EBITDA into cash generated from operations, reflecting increased trade debtors and a decrease in trade payables balance that had accumulated at year end due to the preservation of liquidity at the time. The division continues to target cash conversion in line with the historic average of 90-100% over time.

As previously announced, in line with the covenant test waivers obtained, the next covenant tests at Hirslanden will be at the end of September 2021, using the adjusted EBITDA for the 12 months to that date. This notwithstanding, Hirslanden was fully compliant with its covenants at 30 September 2020, despite the challenging first-half period.

Leading market position sustained through disciplined investments

In 1H21, Hirslanden invested CHF10m (1H20: CHF10m) in expansion capital projects and new equipment and CHF7m (down 53% on 1H20) in maintenance and the replacement of existing equipment and upgrade projects. Maintenance projects were impacted by lockdown restrictions during the pandemic and the active decision taken to postpone or reduce all non-urgent and non-committed capital programmes.

The Group maintains a disciplined approach to capital allocation while ensuring clinical standards and the quality of patient care remain appropriate. Annual maintenance and expansion capex reduced from CHF163m in FY17 to CHF94m in FY20. While remaining highly vigilant of the impact and uncertainty created by the pandemic, the division currently expects to increase its investment compared with the first-half in line with its anticipated seasonally stronger second-half operating performance and cash flows. Hirslanden expects its FY21 capital budget total to be around CHF90m (FY20: CHF94m).

Hirslanden has maintained its excellent clinical standards with all hospitals at or above the clinical Initiative on Quality Medicine benchmark for all Swiss and German hospitals. As part of the longer-term investment strategy, supporting its market-leading position and future growth, approval was given during the period for seven-year CHF200m upgrade and maintenance projects at Hirslanden Klinik St Anna and Klinik Aarau, Hirslanden's second and third largest hospitals. These strategically important projects will include new infrastructure and expand the range of specialised inpatient and outpatient medical services. This is in line with the Group's integrated hub-and-spoke model across care regions and will continue to support the attraction of highly skilled, leading professionals to Hirslanden as it seeks to expand its market share and improve returns. Construction work is expected to begin in Spring 2021 at Klinik St Anna and at the end of 2021 at Klink Aarau.

In line with expected improvements in operating cash flows, the Group currently plans to proportionately increase the annual capex investment at Hirslanden while continuing to generate appropriate free cash flow to equity holders (including the continued annual debt amortisation). Over the medium-term, maintenance capex is expected to be between 4.5-5.5% of revenue while expansion capex will incorporate the seven-year investment at Klinik St Anna and Klink Aarau mentioned above.

In September 2020, Mediclinic through its subsidiary, Hirslanden Venture Capital AG, invested in hystrix medical AG ("hystrix"), a leading medical goods e-commerce marketplace in Switzerland. Combined with the continued partnership with Sana, it is expected that this will support Hirslanden's ongoing focus on efficiencies and procurement savings.

MEDICLINIC SOUTHERN AFRICA

Overview

Mediclinic Southern Africa has cared for a significant number of COVID-19 patients since the start of the pandemic, fulfilling a vital role in South Africa and Namibia's responses to the crisis. However, the division's operating performance was significantly impacted by the pandemic during 1H21.

South Africa implemented lockdown measures on 27 March 2020 to help contain the spread of the pandemic. In line with this decision, Mediclinic Southern Africa suspended elective procedures and closed standalone day case clinics in order to focus all available resources on the pandemic. As a result, revenue was down 40% in April 2020 compared with the prior year period with relatively low COVID-19 patient volumes as the initial peak of the pandemic arrived later in Southern Africa versus the Group's other divisions.

The COVID-19 related restrictions were relaxed on 1 May 2020 resulting in a strong initial recovery in surgical patient volumes and occupancy through to June 2020. From June 2020 onwards, COVID-19 patient volumes rapidly increased across the region in line with the initial wave of the pandemic. This curtailed the division's ability to return to offering its full range of services despite the easing of lockdown measures and restrictions. With the initial peak of the pandemic passing in early August 2020, surgical case volumes subsequently improved, driven by a return in demand for elective procedures. This improving trend continued towards the end of September with Paid Patient Days ("PPDs") at that time recovering to around 90% of prior year levels and stabilising with revenue for September 2020 down around 6% compared with the prior year period.

As a result, Mediclinic Southern Africa's revenue was down 19% to ZAR6 972m (1H20: ZAR8 578m). PPDs decreased by 25.0% and the occupancy rate was 51.1% (1H20: 69.8%). This reflected the significant decline in volumes in April 2020 with a gradual recovery in overall PPDs from May 2020 onwards. Average revenue per bed day increased by 8.9% reflecting the increase in acuity of patients and longer theatre utilisation. The average length of stay was up 17.9% reflecting the longer than average stay for COVID-19 patients and a disproportionately larger decline in day case admissions.

The effects of supply costs and additional staffing requirements during the pandemic further impacted adjusted EBITDA which declined 68% to ZAR573m (1H20: ZAR1 785m) with the adjusted EBITDA margin at 8.2% (1H20: 20.8%). COVID-19-related expenses were around ZAR157m.

Depreciation and amortisation increased by 12% to ZAR382m (1H20: ZAR340m) mainly due to increased spend on hospital infrastructure upgrades and medical equipment in the prior period in line with the division's current upgrade and maintenance cycle. Adjusted operating profit decreased by 87% to ZAR191m (1H20: ZAR1 444m).

Net finance cost increased by 4% to ZAR291m (1H20: ZAR279m) due to lower finance income given lower cash on deposit and lower interest rates, with around half the division's debt hedged.

Mediclinic Southern Africa contributed a loss of £1m to the Group's adjusted earnings, compared with a profit of £36m in the prior period.

The division converted 110% (1H20: 106%) of adjusted EBITDA into cash generated from operations.

Investing to support continued long-term growth

In 1H21, Mediclinic Southern Africa invested ZAR219m (down 14% on 1H20) in expansion capital projects and new equipment and ZAR104m (down 71% on 1H20) in maintenance and the replacement of existing equipment and upgrade projects. Maintenance projects were impacted by lockdown restrictions during the pandemic and the active decision taken to postpone or reduce all non-urgent and non-committed capital programmes. Half the expansion projects related to building projects with the largest being the new day case clinic at Mediclinic Bloemfontein that will open earlier than scheduled in 2H21 at the same time as the new Mediclinic Winelands day case clinic. The other half relates to equipment which includes around ZAR50m invested in COVID-19 equipment.

Having moderated its capital budget to preserve liquidity during the initial peak of the pandemic, Mediclinic Southern Africa now expects to invest around ZAR810m in FY21 (FY20: ZAR1 312m). The Group will continue to monitor operating cash flow generation and consequent liquidity to revisit this important investment decision.

The division continues with its multi-year maintenance and upgrade cycle, with medium-term expectations from FY22 onwards for the ratio of maintenance capex to revenue averaging around 3% which combined with reductions over time of expansion projects will result in annual capex of around ZAR1bn.

MEDICLINIC MIDDLE EAST

Overview

Dubai and Abu Dhabi gradually implemented national lockdowns and curfews from March 2020. In Dubai, elective procedures were suspended until 8 May 2020, when certain day procedures were permitted. On 27 May, remaining procedures were re-introduced. In Abu Dhabi such restrictions were not implemented, although inpatient admissions and outpatient cases were significantly impacted as a result of lockdown measures. Since restrictions started to lift in May 2020 across the UAE, volumes gradually increased and by July 2020, non-COVID-19 inpatient admissions had surpassed the prior year volumes. This trend continued through the second quarter period, supported by counter-seasonal holiday trends resulting from imposed travel restrictions, which caused a significant increase in August 2020 volumes compared with the prior year period. However, outpatient cases, as seen in other markets globally, were slower to recover and by September 2020 still remained marginally lower than the prior year period.

While the pandemic materially impacted non-COVID-19 activity levels, Mediclinic rapidly adapted to the pandemic and with the support of the health authorities in Dubai and Abu Dhabi launched several initiatives. In addition to treating COVID-19 patients in its hospitals, Mediclinic also operated several alternative interim facilities that cared for and monitored asymptomatic and low-acuity patients. Mediclinic launched virtual care and pharmacy home delivery services so patients could be diagnosed and supplied with prescribed medication without the need for face-to-face consultations. In addition, the division is involved in various projects supporting communities including large-scale screening and the establishment of two new laboratories for COVID-19 and antibody testing.

As a result, Mediclinic Middle East 1H21 revenue increased 9% to AED1 760m (1H20: AED1 616m). This includes COVID-19 related and other initiatives that delivered around AED270m of revenue during the period. The average revenue per admission was up 25.1% reflecting an increase in acuity directly and indirectly due to COVID-19.

The diagnostic-related grouping reimbursement model for inpatient procedures was implemented in Dubai on 1 September 2020. Initial results indicate that, as previously guided, the change is expected to be revenue neutral for Mediclinic.

The division delivered an increase in 1H21 adjusted EBITDA of 9% to AED223m (1H20: AED204m) with revenue growth from new services offsetting additional COVID-19 related expenses that totalled around AED17m. The adjusted EBITDA margin was in line with the prior year at 12.7% (1H20: 12.6%).

Adjusted depreciation and amortisation decreased by 1% to AED122m (1H20: AED123m). Adjusted operating profit increased by 29% to AED104m (1H20: AED80m).

Net finance cost decreased by 14% to AED40m (1H20: AED47m), mainly due to a decrease in the base rate. One third of the borrowings are hedged.

The division contributed £13m to the Group's adjusted earnings compared with £7m in the prior period.

The division converted 9% (1H20: 109%) of adjusted EBITDA into cash generated from operations, due to slow collections, exacerbated by the strong counter-seasonal performance in the second quarter period.

Leading market position sustained through disciplined investments

In 1H21, Mediclinic Middle East made planned investments totalling AED43m (down 2% on 1H20) in expansion, largely associated with the new CCC at Mediclinic Airport Road Hospital, a DaVinci Robot surgical system and the EHR. Maintenance capex was AED19m (down 11% on 1H20) as projects were delayed during the pandemic.

FY21 capex budget of around AED270m (FY20: AED220m) is weighted towards the second-half of the year as the Mediclinic Airport Road Hospital projects prepares to open in January 2021 and the EHR rollout continues. The EHR is expected to deliver seamless care and improved service quality for patients, as well as improved administration efficiency for the division.Since going live in FY19 at Mediclinic Parkview Hospital, the system has been systematically rolled out across the division, with Mediclinic Airport Road Hospital and Mediclinic Al Jowhara Hospital the latest major go-live projects. The two remaining Abu Dhabi and Al Ain facilities will be live before the end of 2020 with the remaining Dubai facilities live by the end of 2021.

Major expansion projects at Mediclinic Middle East are nearing completion and following FY21, capex will decline over the following two years, stabilising at around 50% of the FY21 budget from FY23.

group OUTLOOK

2H21

Demand for the Mediclinic's broad range of healthcare services remains strong and the Group is confident that this, together with its strategy execution and operational delivery, will drive long-term performance. In the short-term, the Group remains suitably cautious on its 2H21 performance in the midst of uncertainty as to the severity, duration and full impact of the continuing pandemic, as well as its economic aftermath. 

The divisional outlooks below do not reflect the impact on the business of severe restrictions such as those imposed by authorities in April 2020, which suspended the provision of non-urgent elective procedures.

Hirslanden

Europe is now experiencing a second wave of the pandemic and while the severe restrictions on elective procedures implemented in March and April 2020 have not yet been implemented, the second wave is expected to impact on hospital and outpatient revenues. When combined with a similar cost profile to 1H21, the division expects 2H21 revenue and EBITDA to be broadly in line with 2H20.

Mediclinic Southern Africa

The initial peak of the pandemic only recently passed across the region with Mediclinic currently still caring for sizable numbers of COVID-19 patients. As such, Mediclinic Southern Africa has not yet experienced the same rebound witnessed in the other two divisions. Considering this in combination with the potential macroeconomic impact and consequent effect on medical scheme membership, the division currently expects the recent revenue trend, as reported for the month of September 2020, to broadly continue through 2H21. With improved cost efficiencies, the EBITDA margin is expected to improve from that experienced in 1H21.

Mediclinic Middle East

The encouraging underlying 1H21 improvement in volumes was supported by counter-seasonal holiday trends resulting from imposed travel restrictions and COVID-19-related and alternative initiatives. With the region now experiencing a second wave of the pandemic, non-COVID-19-related patient activity could be impacted while less than 50% of COVID-19-related initiatives in 1H21 are expected in 2H21. The counter-seasonal benefit in 1H21 is expected to unwind during the December and January holiday period, impacting patient activity. Coupled with macroeconomic uncertainty and the consequent impact on the expatriate population, the division expects to deliver modest revenue growth in 2H21 compared with the prior year period. The EBITDA margin is expected to be temporarily impacted in 2H21 compared with 2H20 due to the described revenue impact and start-up costs associated with opening the CCC and expansion at Mediclinic Airport Road Hospital.

Year ending 31 March 2022 ("FY22")

The Group recognises significant uncertainty and volatility is expected to remain for at least the following 18 months due to the pandemic. However, the current expectation is for Group revenue and EBITDA in FY22 to be broadly in line with FY20. Growth will be most notable at Mediclinic Middle East given prior year investments continuing to ramp up, while the recovery at Mediclinic Southern Africa is likely to be the most gradual over time, given the macroeconomic outlook.

SPIRE HEALTHCARE GROUP

Mediclinic holds a 29.9% investment in Spire which is equity accounted. Spire reported its half-year financial results for the period ended 30 June 2020 on 17 September 2020.

The outbreak of COVID-19 in the United Kingdom ("UK") presents uncertainty for Spire. During the COVID-19 crisis, Spire has shown its unwavering support to the National Health Service ("NHS"), agreeing to make nearly all 39 of its UK hospitals available to the NHS and its patients. 

Under the NHS arrangements Spire is entitled to cash cost recovery for its services. Spire subsequently agreed Heads of Terms to vary the NHS England contract to protect minimum private capacity in all sites, driving positive momentum in admissions and providing firm end date of 31 December 2020 at latest. 

For the six months ended 30 June 2020, Spire reported a loss after taxation of £233m (30 June 2019: profit of £7m) including a goodwill impairment charge of £200m. Since the Group has previously impaired its equity investment in Spire, the amount of £60m was reversed in the period to reflect the recoverable amount of the Group's investment in Spire. Mediclinic's 1H20 equity accounted loss amounted to £10m (1H20: income £2m).

In addition, its lenders have agreed to amend the June 2021 covenant test, with the next test in December 2021, and maturity of the Senior Loan Facility was extended by one year to July 2023. Given the economic uncertainty of the COVID-19 pandemic, Spire has considered forecasts and projections, including modelling for various scenarios, covering both the risk of a national or extensive regional lockdown in late 2020 and early 2021, and concluded that it is appropriate to prepare their half-yearly financial report on a going concern basis. 

BOARD UPDATES

The following changes to the Board and its committees have occurred and been announced since the financial year-end:

As announced on 24 July 2019 and 22 July 2020, Dr Edwin Hertzog retired as a non-executive director and Chair of Mediclinic at the conclusion of the Company's 2020 Annual General Meeting on 22 July 2020. Dr Hertzog also stepped down as Chair of the Nomination Committee, as Chair of the Investment Committee, and as a member of the Clinical Performance and Sustainability Committee from that date.

Dr Hertzog was succeeded as Chair of Mediclinic by Dame Inga Beale on 22 July 2020, following her appointment on 26 March 2020 as an independent non-executive director and Chair Designate.  As announced on 22 July 2020, Dame Inga also succeeded Dr Hertzog as Chair of the Nomination Committee with effect from that date. 

As further announced on 22 July 2020, Mr Steve Weiner was appointed as an independent non-executive director and as a member of both the Audit and Risk Committee and the Clinical Performance and Sustainability Committee with effect from 22 July 2020.

The Board has also agreed to certain additional changes to the membership of its committees as part of ongoing succession planning, as set out below:

Investment Committee:

Mr Jannie Durand was appointed as Chair of the Investment Committee and Dame Inga was appointed as a member of the Investment Committee with effect from 1 September 2020.

Remuneration Committee:

Mr Weiner was appointed as a member of the Remuneration Committee with effect from 11 November 2020.

The Remuneration Committee continues to debate the targets for the FY21 long-term incentive plan award and will, as communicated in the FY20 Directors' Remuneration Report, consult with shareholders as appropriate in due course. Details of the awards, including the targets, will be disclosed at the time of grant and in the FY21 Directors' Remuneration Report. Further to the disclosure in the FY20 Directors' Remuneration Report regarding the suspension of a final decision on the FY20 short-term incentive pay-out for executive directors, the Remuneration Committee continues to review this position in light of the robust first-half operating performance and strong financial position and liquidity of the Group.